The EIUG welcomes the Government’s decision to continue funding the EII compensation scheme for 2026–2027. However, extending the scheme by only one year falls far short of the stability certain energy‑intensive industries (EIIs) need to plan and invest with confidence. It also sits uneasily alongside the Government’s own commitments in the Industrial Strategy and the Chancellor’s recent statements on the importance of stability for business investment.
The scheme lowers electricity costs for these industries due to UK carbon pricing. It part compensates them for the indirect emission costs from the UK Emissions Trading Scheme and Carbon Price Support mechanism, by avoiding putting them at a competitive disadvantage thereby reducing the risk of carbon leakage and encouraging domestic investment. EIIs need clear visibility of how they will be treated over multiple years to plan major investments, manage exposure to energy price volatility, and maintain international competitiveness. A one‑year extension does not provide the level of certainty and stability required for investment cycles that often span a decade or more.
The Industrial Strategy announced that the Government will continue the EII compensation scheme in June last year, following the 3-year Spending Review earlier that month. However, at the time of rapidly increasing electricity prices over the past weeks, HMT has now made the decision to extend the scheme by one year only. This decision flatly contradicts the Chancellor’s aim “to deliver stability to create the strong foundations for business to plan an invest”, as set out in her Mais lecture earlier. A one-year extension only, after a 3- year Spending Review, comes very close to reneging on a budget commitment, undermines the effectiveness of Treasury’s own CBAM and does not give EIIs the confidence to invest in the UK.
Arjan Geveke, Director, Energy Intensive Users’ Group, said:
“Extending the EII compensation scheme by only one year gives manufacturers little confidence to invest in the UK. A more long-term budget settlement in accordance with the Spending Review is essential if energy intensive industries are to plan major projects and manage electricity costs.
“The Treasury has designed the UK CBAM on the basis that compensation will remain in place until at least 2029. A one-year extension cuts directly across that logic and leaves a clear gap between CBAM policy design, including leaving some CBAM sectors without compensation or indirect emissions in CBAM, and the support framework industry is expected to rely on.
“If Treasury wants to deliver on its policies and provide stability , it must commit budget according to at least its own spending review period”.